Global Market Quick Take: Europe – 11 December 2024

Key points

• Equities:  US and Europe dip slightly
• Volatility: VIX futures rise; increased hedging signals market caution
• Currencies: USD awaits US CPI data today, CAD eyes big Bank of Canada cut incoming
• Commodities: Our favourite brew hits record; Crude and gold gain ahead of CPI
• Fixed Income: German bunds gain while US Trasuries face pressure ahead of major auctions
• Macro events: US Nov CPI and Bank of Canada rate decision

The Saxo Quick Take is a short, distilled opinion on financial markets with references to key news and events.

Saxo’s Outrageous Predictions for 2025 is out, and can be found here

Macro data and headlines

US data was mostly second tier but signalled a goldilocks scenario. Small business NFIB optimism index rose to its highest since 2021, showing some post-US election exuberance. Meanwhile, unit labour costs for Q3 were revised lower to 0.8% from 1.9%, undershooting the expected 1.5% revision.

US CPI preview: After mixed jobs data last week, focus is back on inflation this week. Consensus expects core inflation to remain steady at 0.3% MoM for a 4^th straight month in November, with the YoY print at 3.3% for a 3^rd straight month. A higher-than-expected US CPI reading might not prevent a rate cut at next week’s FOMC meeting, but it could influence the anticipated rate cuts priced for FOMC meetings from March 2025 onward, potentially guiding the direction of the USD.

Bank of Canada preview: The BoC is widely expected to cut rates on Wednesday 11th December, with the consensus looking for another 50bps rate cut, but with a risk of a smaller 25bp move. Labor data last week mostly spurred bets of a larger cut, with unemployment rate rising to 6.8%.

Macro events (times in GMT):  US Nov CPI (1330), BOC rate decision (1445), EIA’s Crude and Fuel Stocks report (1530), US Treasury to auction 10-year T-notes (1800), Australia Nov. Employment Data (0030)

Earnings events

• Today: Adobe, Inditex
• Thursday: Broadcom, Costco

For all macro, earnings, and dividend events check Saxo’s calendar.

Equities

• US: US markets closed lower on Tuesday ahead of key inflation data, with the S&P 500 down 0.3%, the Nasdaq Composite down 0.25%, and the Dow Jones off 0.35%. Nvidia shares dropped 2.7% amid a Chinese antitrust investigation, while Oracle fell 6.7% on disappointing revenue results. Investors remain optimistic about a possible December rate cut, supported by expectations of tame inflation data.
  • Quantum leap: Google-parent Alphabet rose over 5.5% on the announcement of a breakthrough in performance of its quantum chip Willow, which performed calculations in minutes that would take standard supercomputers trillions of trillions of years. The announcement boosted the few quantum computing pure-plays to varying degrees, with Rigetti Computing rising the most, up 45% on the day. Read more about the four US quantum computing stocks here.
  • Walgreens Boots Alliance jumped nearly 18% on news that Sycamore Partners, a private equity firm, is in talks to acquire the company, which has struggled in recent years, down some 80% since early 2022.
• Europe: European stocks ended lower on Tuesday, with the Stoxx 50 down 0.68% and the broader Stoxx 600 off 0.52%, as markets braced for upcoming US inflation data and ECB rate decisions later this week. Luxury stocks like Kering cooled after recent gains, while Siemens Energy slid more than 4% following a sharp rally in November. Investors showed caution ahead of central bank announcements and fiscal policy developments.

Volatility

Volatility is rising, with VIX futures surging over 11%, crossing the 16 mark, as markets brace for key US inflation data. The VIX rose slightly to 14.18, while the VIX9D climbed sharply, reflecting heightened sensitivity to imminent macroeconomic events. Options activity was robust, with heavy volume in Alphabet, Tesla, and Nvidia. The Put/Call Ratio for Indices (PCCI), which measures the ratio of put options to call options in major indices, indicated increased hedging activity, underscoring market caution ahead of CPI data and ECB rate decisions.

Fixed Income

The German yield curve bull steepened with shorter maturities rallying on expectations of ECB rate cuts, while longer maturities underperformed amid weakness in U.S. and UK bonds. UK Gilts saw bear steepening, with 30-year yields hitting 4.87% their highest level since late November. Italian and French bond yields were relatively stable. In the U.S., Treasuries extended losses as investors prepared for major auctions of 10- and 30-year bonds later in the week. Yields rose slightly across the curve, with the 10-year ending near session highs. Early curve steepening was reversed by a large block trade, leaving the curve flatter by the session’s end. The market’s weakness was attributed to concession-building ahead of these auctions.

Commodities

• Crude oil trades higher ahead of key US inflation data and OPEC’s monthly report, supported by the Biden administration considering new sanctions on Russia's oil trade; a key policy meeting in China; and the EIA now forecasting a small supply deficit in 2025 compared with a previous surplus—a stark contrast to the IEA’s recent forecast for a 1 million barrel-a-day surplus. Note, the IEA’s latest Monthly Report is due on Thursday.
• Arabica coffee prices surged to an all-time high at USD 3.4835 per pound after Volcafe, a major trader, lowered their 2025/26 outlook by nearly one-quarter, before ending the day lower. This highlights how elevated uncertainty drives elevated volatility.
• Gold is back in ‘Santa’ rally territory, currently up 2% on the month and on track for an unprecedented eighth consecutive December gain. The latest gains are supported by a softer dollar, central bank buying, Syria focus, and traders adding fresh longs following the November correction. Some resistance is likely to be found ahead of USD 2720.
• Chicago corn futures jumped to a five-and-a-half-month high on Tuesday, after the USDA, in a monthly report, slashed the domestic corn supply forecast by more than the market had expected. Soybean futures also rose, supported by strong exports of soyoil, while wheat futures firmed following cuts to the European Union and Russian crops.

Currencies

• USDJPY found resistance near 152.00 as US treasury yields rebounded sharply yesterday. The US dollar traded mostly sideways later yesterday as the market looks ahead to US November CPI data today with considerable anticipation. The headline figure is expected at +0.3% MoM and +2.7% YoY after +2.6% YoY in October, while the ex Food and Energy reading is expected to print +0.3% MoM and 3.3% YoY after 3.3% YoY in October.
• AUD and NZD traded to new lows versus the US dollar, with multi-year lows coming into view in AUDUSD and NZDUSD coming into view to the downside. Australia reports November employment data tonight,
• CAD trades weak near multi-year lows after brushing 1.4200 yesterday ahead of an anticipated 50 basis point rate cut from the Bank of Canada today as the central bank will have outpaced the Fed with 175 basis points of easing, while the Fed has only eased 50 basis points.